Holiday Pay at Umbrella Companies
One question often asked by contractors is do umbrella companies pay holiday pay.
The answer to that one is simple. It’s ‘Yes’. They must do so by law. If your umbrella company is not paying you any then they are acting illegally.
By law, as you are an employee of an umbrella company (despite being really a contractor), they have to give you 28 days holiday a year.
However, they are not fools. If they paid you all the money you earned, after tax deductions, and then paid you holiday pay on top of that, at your normal rate, they would quickly go bust.
Pay Your Own
As you would expect, when you get holiday pay at an umbrella company, you end up paying for it yourself.
So, how do they do it? There’s two ways of doing it.
Firstly they can deduct a percentage of your income, as they receive it. They would then pay it back to you as holiday pay. You are basically chipping in for your own holiday pay.
Secondly, some umbrella companies pay you just the minimum wage and pay you the rest of the money as a bonus.
This means that they are deducting what will be used as your holiday pay at minimum wage rates.
Many contractors will take holidays anyway. So they will be paid their holiday pay at minimum wage rate while they are on vacation.
Of course, few contractors will take 28 days holiday a year. However, if you are off sick or have to take a day off here and there for other purposes, the umbrella companies will allow you to claim those days off as holidays. You will be paid your holiday on them.
So, what will happen if you are not able to take all of those 28 days off a year? Will the umbrella company simply keep the money?
Of course not! They will pay you the money you haven’t taken at some point, most likely the end of the financial year. If you leave the umbrella company they will refund any outstanding holiday pay that you have not collected.
It does seem like a higgledy piggledy way of doing things but it’s all a bit of a ruse to get around legislation.
Pretending that contractors are employees does throw up problems but wily umbrella companies are always able to find a way around them for the benefit of contractors. The holiday pay issue is just one example of this.